Economist offers tax overhaul for state

Wednesday, September 10, 2003

By Marc Powers, Southeast Missourian

JEFFERSON CITY, Mo. -- A retired University of Missouri economist pitched a proposal to radically overhaul the state's tax structure and system of distributing education funding before a special legislative committee on Tuesday.

However, some panel members said the plan would increase the overall tax burden while establishing an unconstitutional funding mechanism for education.

Dr. Ed Robb of Columbia presented the committee with a report on state tax policy and education funding he authored last May for the University of Missouri's State and Regional Fiscal Studies Unit.

Robb said extensive changes in the tax code are needed to foster a more business-friendly environment that would lead to additional jobs in Missouri.

"We have done nothing to encourage businesses, in a real sense, to expand or locate in Missouri," Robb said.

To that end, he suggested repealing the corporate income and franchise taxes, which many companies avoid paying anyway, and replacing them with some type of set fee on all businesses.

He also proposed imposing a 6.75 percent flat tax on individual income to replace the current income tax that tops out at 6 percent. Most tax credits and deductions would be eliminated under his plan.

The higher income tax would generate an estimated $2.8 billion in new revenue, $2.4 billion of which would be used to lower local property taxes.

Robb said such a change could potentially allow 351 of Missouri's 524 school districts to completely eliminate the portion of their property tax levies used to finance general operations, while allowing drastic reductions at another 132 districts.

Because property values vary widely across the state, there is great disparity among school districts' ability to raise money locally. The current funding distribution formula seeks to address those differences by funneling more state education dollars to poorer districts, while wealthy school systems receive little in state aid.

Under Robb's proposal, all districts would get $4,750 per pupil from the state. Districts wishing to spend more could still levy property taxes, but the rates would be greatly reduced from current levels.

The Joint Interim Committee on Education is considering ways to revamp how the state pays for public education. Approximately 200 school districts are preparing a court challenge of the current system, which they claim provides too little money that is unfairly distributed.

Equity issue

State Sen. Wayne Goode, D-Normandy, said Robb's distribution method ignores the equity issue as richer districts would still have greater access to revenue at the local level.

"As long as you have districts needing to use property taxes, you have a pretty big equity argument you need to deal with," Goode said.

A lack of equity in education funding a decade ago led to the creation of the current formula after a judge declared the previous system unconstitutional. Robb said he didn't weigh the constitutional issues.

Goode also said lowering property levies in favor of a higher state income tax rate would cut a break to non-Missouri residents who own a lot of the state's high-end properties, to the detriment of Missourians.

"It appears to me that if you eliminate or greatly reduce property taxes, you have a tremendous shift in the tax burden," Goode said.

State Sen. Charlie Shields, R-St. Joseph and the committee chairman, said Robb proposed some interesting ideas the panel could incorporate into legislation for lawmakers to consider next year.

"The reality of that happening in the format he presented is probably remote," Shields said. "I do think some elements of that are within the realm of possibility."

In particular, Shields said, the state should move away from property taxes as the primary source for funding education.